5 Financial Literacy Lessons That Lead To Better Investing

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To celebrate Financial Literacy Month, CNBC Invest in You features weekly stories from highly regarded business figures, including financial tips and lessons they’ve gathered over the course of their careers.

For investors, 2020 has been a year of extremes. In February, the longest bull market of the century collapsed, only to rebound and reach new heights during this year.

Millions of Americans have lost their jobs and wages without a safety net to catch up, as a new generation of retail investors entered the markets and dominated the headlines.

The old adage, “knowledge is power” has never been truer. Financial literacy can be one of the keys to economic success and freedom. We spoke with market, small business and finance leaders about what this means to them.

Allianz Chief Economist, Mohamed El-Erian, says financial education is important because it allows investors to “play a better offense, a better defense.”

Offensive financial acumen enables investors to make more money, manage that money smarter, and protect their money from unforeseen risks.

When it comes to defensive maneuvers, El-Erian implores investors to avoid three big pitfalls. First, the debt trap, or when you take on too much debt. Thanks to low interest rates more Americans were able to rfinance their debt and repay it faster than they have been for decades.

El-Erian also cautions against inflation traps and liquidity traps. Rising inflation, or the rise in the general price level, has a growing number of investors and worried small business owners, with 17% of 10,000 small businesses surveyed citing inflation as their biggest concern, and the market is experiencing volatility on its way to new highs as it combats fears that the Fed will let the economy run too much. quickly, causing galloping inflation.

These inflation fears have so far proven to be manageable. And a strong economy is the result of informed market participants, according to CEO and Chairman of the Nasdaq, Adena Friedman.

“Taking advantage of available financial education is a big part of what makes our (American) economy so strong,” Friedman said.

Retail investors have flocked to the markets over the past year and being able to understand the mechanics of the markets is an important factor in their success. Financial literacy also gives people the confidence to open small businesses, according to Friedman.

Sol Trujillo’s love for baseball led to a love of math, a subject he considers the cornerstone of financial literacy. The co-founder of the Latino Donor Collaborative himself learned the stats to follow his favorite players and teams.

Baseball is a statistician’s dream. Every action on the pitch is documented to create reams of data that can give a clear picture of a team’s or even a player’s performance.

“I used to keep track of all the players and their batting averages and RBIs, all kinds of stats because I did the math… I learned to do it right and to process things faster in my mind. “

In many communities, small businesses offer more than a salary, they offer a path to success. Maria Contreras-Sweet, former head of the Small Business Administration, believes that for entrepreneurs to be successful, they need to be financially literate.

“You can have a good idea. But when you have financial autonomy, you know how to execute, you know how to access capital and you can scale,” Contreras-Sweet said.

Contreras-Sweet emigrated from Mexico with her family when she was only five years old. She attributes her financial education to her ability to open California’s first Hispanic commercial bank in over 35 years. “I learned to save money, invest it and use it well,” she said.

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